Prepaid Legal Services sells memberships that allow members to access legal services through a network of independent law firms under contract with the company. Provider law firms are paid a monthly fixed fee on a capitated basis to render services to plan members residing within the state or province in which the provider law firm attorneys are licensed to practice. Because the fixed fee payments do not vary based on the type and amount of benefits utilized by the member, this capitated arrangement helps the company manage claims risk. At December 31, 2006, Memberships subject to the capitated provider law firm arrangement comprised approximately 99% of active Memberships. The remaining Memberships, approximately 1%, were primarily sold prior to 1987 and allow members to locate their own lawyer (open panel plan) with the member’s lawyer being reimbursed for services rendered based on usual, reasonable and customary fees.
Memberships through a multi-level marketing program that encourages individuals to sell Memberships and allows individuals to recruit and develop their own sales organizations. Commissions are paid only when a Membership is sold.
Principal competitors include Hyatt Legal Plans (a MetLife company), ARAG® North America, National Legal Plan and Legal Services Plan of America (a GE Financial company, formerly the Signature Group). Most of these concentrate their marketing to larger employer groups and offer open panel plans.